Question 1

The accounting problems encountered in consolidated intra-entity debt transactions when the debt is acquired by an affiliate from an outside party include all of the following except:
A) Both the investment and debt accounts have to be eliminated now and for each future consolidated financial statement despite containing differing balances.
B) Subsequent interest revenue/expense must be removed although these balances fail to agree in amount.
C) A gain or loss must be recognized by both parent and subsidiary companies.
D) Changes in the investment, debt, interest revenue, and interest expense accounts occur constantly because of the amortization process.
E) The gain or loss on the retirement of the debt must be recognized by the business combination in the year the debt is acquired, even though this balance does not appear on the financial records of either company.

Accepted Answer

The answer of The accounting problems encountered in consolidated intra-entity...

Question 2

On January 1, 2019, Cocker reacquired 8,000 of the outstanding shares of its own common stock for $34 per share.None of these shares belonged to Popper.How would this transaction have affected the additional paid-in capital of the parent company?
A) $0.
B) Decrease it by $32,900.
C) Decrease it by $45,700.
D) Decrease it by $23,100.
E) Decrease it by $50,500.

Accepted Answer

The transaction of reacquiring 8,000 shares of its own common stock would decrease the additional paid-in capital of the parent company by the amount equal to the excess of the original issue price over the reacquisition price, which is $34 - $7 = $27 per share. Therefore, the total decrease in additional paid-in capital would be $27 x 8,000 = $216,000. However, since Popper did not own any of the outstanding shares, the decrease in additional paid-in capital will only affect the remaining shareholders, and not Popper. The remaining shareholders' equity will decrease by $216,000, but Popper's equity will remain unaffected.

Question 3

If new bonds are issued from a parent to its subsidiary, which of the following statements is false?
A) Any premium or discount on bonds payable is exactly offset by a premium or discount on bond investment.
B) There will be $0 net gain or loss on the bond transaction.
C) Interest expense needs to be eliminated on the consolidated income statement.
D) Interest revenue needs to be eliminated on the consolidated income statement.
E) A net gain or loss on the bond transaction will be reported.

Accepted Answer

The answer of If new bonds are issued from a...

Question 4

A subsidiary issues new shares of common stock.If the parent acquires all of these shares at an amount greater than book value, which of the following statements is true?
A) The investment in subsidiary will decrease.
B) Additional paid-in capital will decrease.
C) Retained earnings will increase.
D) The investment in subsidiary will increase.
E) No adjustment will be necessary.

Accepted Answer

When the parent acquires all the new shares issued by the subsidiary at an amount greater than book value, the investment in the subsidiary will increase. This is because the amount paid in excess of book value is recorded as goodwill on the parent's consolidated balance sheet. The other options are incorrect because the acquisition of new shares does not impact additional paid-in capital or retained earnings of the subsidiary.

Question 5

Keenan Company has had bonds payable of $20,000 outstanding for several years.On January 1, 2018, there was an unamortized premium of $2,000 with a remaining life of 10 years, Keenan's parent, Ross, Inc., purchased the bonds in the open market for $19,000.Keenan is a 90% owned subsidiary of Ross.The bonds pay 8% interest annually on December 31.The companies use the straight-line method to amortize interest revenue and expense.Compute the consolidated gain or loss on a consolidated income statement for 2018.
A) $3,000 gain.
B) $3,000 loss.
C) $1,000 gain.
D) $1,000 loss.
E) $2,000 gain.

Accepted Answer

The answer of Keenan Company has had bonds payable of...

Question 6

Which of the following statements is true for a consolidated statement of cash flows?
A) Parent's dividends and subsidiary's dividends are deducted as a financing activity.
B) Only parent's dividends are deducted as a financing activity.
C) Parent's dividends and its share of subsidiary's dividends are deducted as a financing activity.
D) All of parent's dividends and noncontrolling interest of subsidiary's dividends are deducted as a financing activity.
E) Neither parent's nor subsidiary's dividends are deducted as a financing activity.

Accepted Answer

The answer of Which of the following statements is true...

Question 7

In reporting consolidated earnings per share when there is a wholly owned subsidiary, which of the following statements is true?
A) Parent company earnings per share equals consolidated earnings per share when the equity method is used.
B) Parent company earnings per share is equal to consolidated earnings per share when the initial value method is used.
C) Parent company earnings per share is equal to consolidated earnings per share when the partial equity method is used and acquisition-date fair value exceeds book value.
D) Parent company earnings per share is equal to consolidated earnings per share when the partial equity method is used and acquisition-date fair value is less than book value.
E) Preferred dividends are not deducted from net income for consolidated earnings per share.

Accepted Answer

The answer of In reporting consolidated earnings per share when...

Question 8

A subsidiary issues new shares of common stock at an amount below book value.Outsiders buy all of these shares.Which of the following statements is true?
A) The parent's additional paid-in capital will be increased.
B) The parent's investment in subsidiary will be increased.
C) The parent's retained earnings will be increased.
D) The parent's additional paid-in capital will be decreased.
E) The parent's retained earnings will be decreased.

Accepted Answer

When the subsidiary issues new shares of common stock at an amount below book value and outsiders buy all of these shares, it means that the subsidiary is receiving less money than the value of the shares. This difference between the amount received and the book value will result in a decrease in the parent company's additional paid-in capital.

Question 9

Stevens Company has had bonds payable of $10,000 outstanding for several years.On January 1, 2018, when there was an unamortized discount of $2,000 and a remaining life of 5 years, its 80% owned subsidiary, Matthews Company, purchased the bonds in the open market for $11,000.The bonds pay 6% interest annually on December 31.The companies use the straight-line method to amortize interest revenue and expense.Compute the consolidated gain or loss on a consolidated income statement for 2018.
A) $1,000 gain.
B) $1,000 loss.
C) $2,000 loss.
D) $3,000 loss.
E) $3,000 gain.

Accepted Answer

The answer of Stevens Company has had bonds payable of...

Question 10

With respect to Nichols' investment in Smith, determine the amount to be recorded and identify which account should be adjusted to reflect such amount.
A) $1,324,000 for Investment in Smith.
B) $1,200,000 for Investment in Smith.
C) $1,200,000 for Investment in Smith's Common Stock and $124,000 for Investment in Smith's Preferred Stock.
D) $1,200,000 for Investment in Smith's Common Stock and $120,000 for Investment in Smith's Preferred Stock.
E) $1,448,000 for Investment in Smith's Common Stock.

Accepted Answer

The answer of With respect to Nichols' investment in Smith,...

Question 11

Which of the following statements is true concerning the acquisition of existing debt of a consolidated affiliate in the year of the debt acquisition?
A) Recognition of any gain or loss is deferred until the debt is extinguished for purposes of reporting such debt on consolidated financial statements.
B) Any gain or loss is recognized in the year of acquisition on a consolidated income statement.
C) Interest revenue generated from the debt of an affiliate is recognized on a consolidated income statement.
D) Interest expense recognized from carrying debt instruments is recognized on a consolidated income statement.
E) Consolidated retained earnings is adjusted to take into account the difference between the purchase price and carrying value of the debt.

Accepted Answer

According to accounting standards, any gain or loss from the acquisition of existing debt of a consolidated affiliate should be recognized in the year of acquisition on a consolidated income statement. This means that any difference between the purchase price and carrying value of the debt will impact the consolidated income statement in the year of acquisition. Interest revenue and interest expense from carrying debt instruments will also be recognized on the consolidated income statement, but this question specifically asks about the recognition of any gain or loss from the acquisition of existing debt. Option A is incorrect because accounting standards require immediate recognition of any gain or loss from debt acquisition. Option C and D are partially correct, but not the best choice for this question. Option E is incorrect because consolidated retained earnings is only adjusted for items that impact the equity accounts of the consolidated entities, and the acquisition of debt does not directly impact equity accounts.

Question 12

Compute the noncontrolling interest in Smith at date of acquisition.
A) $486,000.
B) $480,000.
C) $300,000.
D) $150,000.
E) $120,000.

Accepted Answer

The answer of Compute the noncontrolling interest in Smith at...

Question 13

If Smith's net income is $100,000 in the year following the acquisition,
A) The portion allocated to the common stock (residual amount) is $92,800.
B) $10,800 preferred stock dividend will be subtracted from net income attributed to common stock in arriving at noncontrolling interest in consolidated income.
C) The noncontrolling interest in consolidated net income is $27,200.
D) The preferred stock dividend will be ignored in noncontrolling interest in consolidated net income because Nichols owns the noncontrolling interest of preferred stock.
E) The noncontrolling interest in consolidated net income is $30,800.

Accepted Answer

The answer of If Smith's net income is $100,000 in...

Question 14

What would differ between a statement of cash flows for a consolidated company and an unconsolidated company using the indirect method?
A) Parent's dividends would be subtracted as a financing activity.
B) Gain on sale of land would be deducted from net income.
C) Noncontrolling interest in net income of subsidiary would be added to net income.
D) Proceeds from the sale of long-term investments would be added to investing activities.
E) Loss on sale of equipment would be added to net income.

Accepted Answer

The answer of What would differ between a statement of...

Question 15

If a subsidiary re-acquires its outstanding shares from outside ownership for more than the noncontrolling interest valuation basis at the date of buying such treasury stock, which of the following statements is true?
A) Additional paid-in capital on the parent company's books will decrease.
B) Investment in subsidiary will increase.
C) Treasury stock on the parent's books will increase.
D) Treasury stock on the parent's books will decrease.
E) No adjustment is necessary.

Accepted Answer

The answer of If a subsidiary re-acquires its outstanding shares...

Question 16

If a subsidiary issues a stock dividend, which of the following statements is true?
A) Investment in subsidiary on the parent's books will increase.
B) Investment in subsidiary on the parent's books will decrease.
C) Additional paid-in capital on the parent's books will increase.
D) Additional paid-in capital on the parent's books will decrease.
E) No adjustment is necessary.

Accepted Answer

The answer of If a subsidiary issues a stock dividend,...

Question 17

Which of the following statements is false regarding the assignment of a gain or loss when an affiliate's debt instrument is acquired on the open market?
A) Subsidiary net income is not affected by a gain on the debt transaction.
B) Subsidiary net income is not affected by a loss on the debt transaction.
C) Parent Company net income is not affected by a gain on the debt transaction.
D) Parent Company net income is not affected by a loss on the debt transaction.
E) Consolidated net income is not affected by a gain or loss on the debt transaction.

Accepted Answer

The answer of Which of the following statements is false...

Question 18

The consolidation entry at date of acquisition will include (referring to Smith):
A) Debit Common stock $500,000 and debit Preferred stock $120,000.
B) Debit Common stock $400,000 and debit Additional paid-in capital $160,000.
C) Debit Common stock $500,000 and debit Preferred stock $300,000.
D) Debit Common stock $500,000, debit Preferred stock $120,000, and debit Additional paid-in capital $200,000.
E) Debit Common stock $400,000, debit Preferred stock $300,000, debit Additional paid-in capital $200,000, and debit Retained earnings $500,000.

Accepted Answer

The answer of The consolidation entry at date of acquisition...

Question 19

On January 1, 2019, Cocker issued 10,000 additional shares of common stock for $21 per share.Popper did not acquire any of this newly issued stock.How would this transaction affect the additional paid-in capital of the parent company?
A) $0.
B) Decrease it by $23,240.
C) Decrease it by $68,250.
D) Decrease it by $45,060.
E) Decrease it by $64,720.

Accepted Answer

The answer of On January 1, 2019, Cocker issued 10,000...

Question 20

Compute the goodwill recognized in consolidation.
A) $ 800,000.
B) $ 310,000.
C) $ 124,000.
D) $ 0.
E) $(196,000.)

Accepted Answer

The answer of Compute the goodwill recognized in consolidation.
A) $...

Quiz 6: A: Variable Interest Entities, Intra-Entity Debt, Consolidated Cash Flows, and Other Issues

The accounting problems encountered in consolidated intra-entity debt transactions when the debt is acquired by an affiliate from an outside party include all of the following except:

On January 1, 2019, Cocker reacquired 8,000 of the outstanding shares of its own common stock for $34 per share.None of these shares belonged to Popper.How would this transaction have affected the additional paid-in capital of the parent company?

If new bonds are issued from a parent to its subsidiary, which of the following statements is false?

A subsidiary issues new shares of common stock.If the parent acquires all of these shares at an amount greater than book value, which of the following statements is true?

Which of the following statements is true for a consolidated statement of cash flows?

In reporting consolidated earnings per share when there is a wholly owned subsidiary, which of the following statements is true?

A subsidiary issues new shares of common stock at an amount below book value.Outsiders buy all of these shares.Which of the following statements is true?

With respect to Nichols' investment in Smith, determine the amount to be recorded and identify which account should be adjusted to reflect such amount.

Which of the following statements is true concerning the acquisition of existing debt of a consolidated affiliate in the year of the debt acquisition?

Compute the noncontrolling interest in Smith at date of acquisition.

If Smith's net income is $100,000 in the year following the acquisition,

What would differ between a statement of cash flows for a consolidated company and an unconsolidated company using the indirect method?

If a subsidiary re-acquires its outstanding shares from outside ownership for more than the noncontrolling interest valuation basis at the date of buying such treasury stock, which of the following statements is true?

If a subsidiary issues a stock dividend, which of the following statements is true?

Which of the following statements is false regarding the assignment of a gain or loss when an affiliate's debt instrument is acquired on the open market?

The consolidation entry at date of acquisition will include (referring to Smith) :

On January 1, 2019, Cocker issued 10,000 additional shares of common stock for $21 per share.Popper did not acquire any of this newly issued stock.How would this transaction affect the additional paid-in capital of the parent company?

Compute the goodwill recognized in consolidation.